Ask Experts Questions for FREE Help!
  Advanced
Register  |  Log in  
   Ask    
 Answer  
  Help  

Ask QuestionsprogressAnswer QuestionsprogressBuild ReputationprogressBecome an Expert
 
Free Answers in 3 Easy Steps

Register Now
3 Steps

At Ask Me Help Desk you can ask questions in any topic and have them answered for free by our experts. To ask questions or participate in answering them you must register for a free account. By registering you will be able to:
  • Get free answers from experts in any of our 300+ topics.
  • Accept money for answers that you provide.
  • Communicate privately with other members (PM).
  • See fewer ads.

Home > Money & Services > Retirement   »   401K early withdrawal

 
Question Tools Search this Question Display Modes
Question
 
 
#1  
Old Jun 18, 2006, 02:31 PM
ripvonboomer
New Member
ripvonboomer is offline
 
Join Date: Jun 2006
Posts: 2
ripvonboomer See this member's comment history on his/her Profile page.
401K early withdrawal

I have a 401K question about early withdrawel. Actually, let me give you a scenario:

401K balance - $28000.00

I have the understanding that 20% is immediately taken out for federal taxes with an early withdrawel, which would be in this case $5600.00, and that would make the distribution check $22400.00... corrrect?
My questions are these:
When does the10% penalty come into play?
Is it 10% of the total balance?
Is the penalty taken out of your refund?
Are there additional taxes - for instance, when I do my takes next year, do I have to add $22400.00 or even the full $28000.00 to my income, and get taxed on it again?

In a nutshell, I would like a breakdown of early withdrawel on 401K with a $28000.00 balance. If I decide to do it, I want to know how much to put back so I don't get caught off guard when tax time rolls around. Can you help me out here?

Thank you so much!

Reply With Quote
 
     

Answers
 
 
Old Jun 18, 2006, 07:16 PM   #2  
shunned
Full Member
shunned is offline
 
shunned's Avatar
 
Join Date: Jun 2006
Posts: 268
shunned See this member's comment history on his/her Profile page.
The 10% penalty comes off the top before taxes.
I think I had Schwab when I did this and they cut me a check with the taxes and penalty already taken out.
Talk with the place you have your 401K as I'd bet they would have the exact answer.
  Reply With Quote
 
     
 
 
Old Jun 19, 2006, 05:18 AM   #3  
ScottGem
Computer Expert
ScottGem is online now
 
ScottGem's Avatar
 
Join Date: Jan 2003
Location: LI, NY - USA
Posts: 22,655
ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.
Pay to call ScottGem for advice ($.75/min)
Call ScottGem via Skype™
As shunned indicated you should be talking to the benefits adminstrators at your company. The 20% withholding is just that, a withholding. Its NOT the extent of your tax liability, just like what's being withheld from your paycheck is not the exact amount you pay.

My question is have you explored a loan rather than a withdrawal? Mosy 401K plans have a load provision. The kicker is that the interest you pay goes right back into your account. Essentially you are borrowing from yourself and paying yourself interest. So instead of a penalty and a tax liability, you actually increase the value of your investment.

Comments on this post
ripvonboomer agrees: Thanks for your response, however I am not permitted to take out a loan.
  Reply With Quote
 
     
 
 
Old Jun 19, 2006, 06:47 AM   #4  
ripvonboomer
New Member
ripvonboomer is offline
 
Join Date: Jun 2006
Posts: 2
ripvonboomer See this member's comment history on his/her Profile page.
The company I worked for shut the doors in April. We have to cash out or roll over. I was contemplating this to get out of a car payment for the next 5 1/2 years. I'm not set on withdrawing it... it's just a thought at this point. I really appreciate the responses. Thanks!
  Reply With Quote
 
     
 
 
Old Jun 19, 2006, 07:15 AM   #5  
ScottGem
Computer Expert
ScottGem is online now
 
ScottGem's Avatar
 
Join Date: Jan 2003
Location: LI, NY - USA
Posts: 22,655
ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.
Pay to call ScottGem for advice ($.75/min)
Call ScottGem via Skype™
You need to look at the cost of a car loan. Over the term of the loan how much will you be paying in interest? During the same amount of time, how much will the rollover of this money earn in interest. Now add in the 10% penalty and the tax implication. I would be very surprised if taking out a car loan doesn't work out better.
  Reply With Quote
 
     
 
 
Old Jun 19, 2006, 07:16 AM   #6  
fredg
Ultra Member
fredg is offline
 
Join Date: Jan 2003
Location: SouthWest Virginia
Posts: 4,634
fredg See this member's comment history on his/her Profile page.fredg See this member's comment history on his/her Profile page.fredg See this member's comment history on his/her Profile page.fredg See this member's comment history on his/her Profile page.fredg See this member's comment history on his/her Profile page.fredg See this member's comment history on his/her Profile page.
Hi, rip,
If you can, please roll it over! You will save much in taxes at a later date.
Yes, If you withdraw it, get the check in your hand, then 10% comes off before the check is written. Then, 20% comes off for Federal Taxes, before the check is written. Then, if you have a State Income Tax, have an additional 4% (possibly, could be more or less) taken out for the State.
That will be a total of about 34% you will never see !!
When it comes time to file your taxes for this year, you DON'T have to pay the Federal and State taxes again. But, you will have to file a form with all the information from your company, about how much was already taken out from your 401k.
Later on in your life, your taxes will be less, especially when you retire. You could save a whole lot of money on taxes by rolling it over, to maybe an IRA account with your local bank.
Talk with your bank about it, and then you can make a better decision.
Best of luck.
  Reply With Quote
 
     
 
 
Old Jul 24, 2006, 12:45 PM   #7  
wompoo dove
New Member
wompoo dove is offline
 
Join Date: Jul 2006
Posts: 2
wompoo dove See this member's comment history on his/her Profile page.
Quote:
Originally Posted by ScottGem
As shunned indicated you should be talking to the benefits adminstrators at your company. The 20% withholding is just that, a withholding. Its NOT the extent of your tax liability, just like what's being withheld from your paycheck is not the exact amount you pay.

My question is have you explored a loan rather than a withdrawal? Mosy 401K plans have a load provision. The kicker is that the interest you pay goes right back into your account. Essentially you are borrowing from yourself and paying yourself interest. So instead of a penalty and a tax liability, you actually increase the value of your investment.


Hi there...

I was wondering if you knew if a Roth IRA also has a provison so that I can borrow against it along with my what you have labeled here as a "load provision" for the 401K...

I would combine the 2 to obtain a downpayment for land to build on if this was possible.

Many thanks for any advice or comments!

Cheers

Don Kimball
  Reply With Quote
 
     
 
 
Old Jul 25, 2006, 05:28 AM   #8  
ScottGem
Computer Expert
ScottGem is online now
 
ScottGem's Avatar
 
Join Date: Jan 2003
Location: LI, NY - USA
Posts: 22,655
ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.
Pay to call ScottGem for advice ($.75/min)
Call ScottGem via Skype™
Sorry that was a typo, should have been loan provision.

Sorry, I'm not that familiar with Roth IRAs to know whether they have a loan provision. I would tend to doubt it since they are self managed. But you can easily find out by asking the institution that the account is deposited with.
  Reply With Quote
 
     
 
 
Old Jul 25, 2006, 08:36 AM   #9  
wompoo dove
New Member
wompoo dove is offline
 
Join Date: Jul 2006
Posts: 2
wompoo dove See this member's comment history on his/her Profile page.
Quote:
Originally Posted by ScottGem
Sorry that was a typo, should have been loan provision.

Sorry, I'm not that familiar with Roth IRAs to know whether they have a loan provision. I would tend to doubt it since they are self managed. But you can easily find out by asking the institution that the account is deposited with.

Scott I would love to know if my 401K offers a loan provision. Is there any obvious way to find this out or do I need to contact the institution itself?

thanks so much

Don Kimball
  Reply With Quote
 
     
 
 
Old Jul 26, 2006, 04:18 AM   #10  
ScottGem
Computer Expert
ScottGem is online now
 
ScottGem's Avatar
 
Join Date: Jan 2003
Location: LI, NY - USA
Posts: 22,655
ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.ScottGem See this member's comment history on his/her Profile page.
Pay to call ScottGem for advice ($.75/min)
Call ScottGem via Skype™
Almost all 401Ks do. The easiest thing is to contact the Benefits department or plan administrator. You should have some sort of plan document that states the provisions.
  Reply With Quote
 
     


Question Tools Search this Question
Search this Question:

Advanced Search
Display Modes

 
Similar Sponsors

Similar Questions
Question Asker Topic Answers Last Post
401K early withdrawal by non-resident SarahRajiv Taxes 7 Sep 19, 2006 08:13 AM
401K early withdrawal ramsky7 Finance 5 Sep 12, 2006 08:55 PM
early withdrawal space207 Retirement 5 Aug 17, 2006 02:04 PM
Early 401k withdrawal 1040NR form phytosan Taxes 5 Apr 28, 2006 08:19 PM
401K Early Withdrawal Penalties? Fitz071669 Taxes 11 Apr 26, 2006 06:15 PM




Copyright ©2003 - 2007, Ask Me Help Desk.
All times are GMT -8. The time now is 04:16 PM.

Content Relevant URLs by vBSEO 3.0.0 RC6 © 2006, Crawlability, Inc.